The Consumer Price Index (CPI) is not a simple average of all prices. It is a weighted index built from a fixed basket of goods and services, where each item's weight reflects its share of typical household spending. The Bureau of Labor Statistics updates weights periodically, but between updates the basket is fixed — a limitation known as substitution bias.

Three well-documented measurement issues affect CPI accuracy:

Substitution bias: consumers switch from expensive beef to cheaper chicken, but the fixed basket may not capture this shift quickly.
Quality adjustment bias: a $1,200 laptop today is far more powerful than a $1,200 laptop in 2010; hedonic adjustments try to isolate pure price change.
Outlet substitution bias: shoppers migrating to discount retailers may pay less than the index assumes.

Measure	Scope	Typical Use
CPI-U	All urban consumers (~93% of population)	Headline inflation, TIPS adjustments
CPI-W	Urban wage earners and clerical workers	Social Security COLA
Core CPI	Excludes food and energy	Trend inflation signal for Fed
PCE	Personal Consumption Expenditures	Fed's preferred target measure